How to invest in NFTs? Non-fungible tokens, a.k.a. NFTs, can be defined as unique cryptographic assets that could represent either digital or other forms of assets. Basically, NFTs digitally symbolize ownership. The most well-known examples are avatars and collectibles. However, non-fungible tokens can symbolize ownership of almost anything.
Do you want to know how to purchase NFTs? Or maybe any potential risks of investing in them? Most of all, do you wonder if NFTs are the right call for you? And if it is, then how do you get started? You can find answers to all these questions and more if you scroll through this post.
Everything You Need to Know Before You Invest in NFTs
First of all, we have to establish the following fact. Just because you are investing in NFTs does not mean you have earned a one-way ticket to being rich. Sure, some lucky NFT investors have experienced unimaginably good returns. But, you have to know that it is not the case for everyone. Everyone’s experience is different. There’s no guarantee that your specific digital asset will make you money. It may or may not happen or keep its value. Before you sign up, you have to understand that there is a chance that NFT could drastically drop out its original value.
Remember that you have to be knowledgeable about cryptocurrencies and computers to invest in NFTs. At least some basic understanding is essential to managing your digital assets well. Otherwise, you are at risk of losing access to NFTs.
How to Invest in NFTs: step-by-step process
Step 1: Create a compatible cryptocurrency wallet
Let’s kickstart with getting a cryptocurrency wallet. If you already have one, you can simply skip this step. If you don’t, you have to create a wallet, as it holds the cryptocurrency that you require to buy the NFT. Also, remember that not all digital wallets sync well with every cryptocurrency. So make sure you have a digital wallet that is compatible with the cryptocurrency needed to buy the NFT you chose.
Some of the biggest NFT marketplaces use ETH, a.k.a. Ethereum’s cryptocurrency. Considering that, it would be best to establish a wallet compatible with Ether. Creating a digital wallet is pretty simple. All you need is a computer or a phone, and you can simply create a digital wallet for free. Coinbase Wallet, MetaMask, and Ledger are wallets with support for NFTs.
Step 2: Select the NFT that you want to purchase
The second step is a fun step, which is shopping for the NFT that you wish to purchase. You will come across collections or sets of creative and unique NFTs. Take your time exploring the marketplace. Choose the NFT wisely to start off your collection.
We can recommend some of the major NFT marketplaces to shop at. They include Rarible, OpenSea, or Axie Marketplace. Note that most NFT marketplaces offer NFTs only with cryptocurrency. Therefore, make sure to take note of the cryptocurrency that you need to purchase your non-fungible token.
Step 3: Pay for your digital wallet
Next, you can fund your digital wallet with fiat money to buy the cryptocurrency that you need for the NFT. For example, you can use US dollars here. As we mentioned earlier, the biggest NFT marketplaces use Ethereum the most. However, maybe the specific NFT that you chose is only offered in a different digital currency than Ethereum.
Remember that most of the time, the allowed currency for an NFT purchase is the cryptocurrency corresponding to the blockchain of the NFT. For example, if the blockchain of NFT is Ethereum, then the allowed cryptocurrency can most probably be Ether.
Step 4: Connect your wallet to a reputable NFT marketplace
At this point, your digital wallet is created and funded. So, you are ready to connect your crypto wallet to the digital marketplace listing the NFT. When you connect it, you will be able to see your wallet’s cryptocurrency balance that is available for buying NFTs.
Step 5: Own an NFT
Now you are ready to purchase NFTs. All you have to do is click the “buy” button. You will notice that NFTs can have a fixed price. Or else, sometimes you may have to bid for it against the highest bidder to purchase it.
Suppose you chose ETH for the transaction. Then, you will need to make a “gas” payment to the Ethereum network for the transaction to process. Usually, this fee can vary according to the network congestion on the Ethereum platform. Sometimes, it may rise to hundreds of U.S. dollars. To estimate the potential gas fee, you can get assistance from websites like Gas Station.
Step 6: Confirm the NFT transfer to your digital wallet
Now that you have clocked the “Buy” button, you officially own an NFT. Keep in mind that once you click “buy”, there is no going back. You cannot cancel or reverse blockchain transactions. The NFT is yours to keep until you sell it.
You will have to wait a while, until the transaction processes. Then you will see the NFT in your digital wallet. Note that the blockchain network that supports the specific NFT needs to confirm and verify the transfer of the NFT to your digital wallet for it to complete.
Once the transaction is complete, you will be able to see the NFT in your digital wallet.
Understand the Risks of Investing in NFTs
Note that, as a new asset class, NFTs should be considered risky. One of the major risks is that it is associated with investing in cryptocurrencies. Sure, cryptocurrency is not a new concept. It has been here for over a decade. On the other hand, digital money is still a relatively new investment option with high volatility. The cryptocurrency value could decrease with no prior warning. It could happen due to difficult market conditions or government decisions.
Let us explain this to you with an example. Suppose your NFT is priced in Ethereum. Due to unfortunate circumstances, the value of Ethereum dropped by 50%. As a result, the value of your NFT could also drop by 50%, or sometimes even more. Basically, there is a chance of effectively losing your whole investment in NFTs or cryptocurrencies.
The Advantages and Disadvantages of Investing in NFTs
Advantages
- You get to be involved in cryptocurrency and blockchain technology.
- The investments are anonymous and generally safe.
Disadvantages
- Depending on the investment, you are at risk of potentially large financial losses.
- You are required to manage a digital wallet.
- Gas Fees can be expensive.
Advantages explanation
You get to be involved in cryptocurrency and blockchain technology
When you invest in NFTs, you automatically gain exposure to a relatively new asset class and technology.
The investments are anonymous and generally safe
You have the chance to purchase NFTs securely and keep them safe in a securedigital wallet of your choice.
Disadvantages explanation
You are at risk of potentially large financial losses
Cryptocurrencies and NFTs are high-risk and volatile investments. You have the possibility of losing all the money you invested in an NFT.
You are required to manage a digital wallet
Maintaining a digital wallet requires you to have at least some IT skills and a basic understanding of the process. You need the knowledge to maintain the digital wallet to buy, store, and sell NFTs. If you are not up to learning these new skills, then you might find the process challenging.
Gas fees can be expensive
As we mentioned earlier, you may have to pay over a hundred dollars as Ethereum gas fees to procure an NFT. Keep in mind that this amount is in addition to the transaction value.
How to Start Investing in NFTs: Beginner-friendly Steps
Are you a first-time investor and new to cryptocurrency and NFTs? If so, we listed some beginner-friendly steps for you to follow when investing.
Establish a Digital Asset Wallet
You require a standalone digital wallet to hold NFTs, preferably one that is compatible with Ethereum. You can choose your crypto wallet to be either a hardware device that you physically keep or software that you downloaded.
Hardware wallets are relatively safer, while software wallets are the most convenient option.
Choosing The Right NFTs To Buy
Explore NFT marketplaces online to find the NFT that you want to purchase. You can look through a variety of short videos, images, and creative artwork to find the right one. Usually, NFTs are available in sets or collections. The price of a single NFT could be free or thousands of dollars per unit. Make sure to choose one that you like and that also has a bigger chance of gaining value (this might not possibly be done by the investor himself and he might need consultancy.)
Complete Your First Ever Transaction
You first need to connect your digital wallet to the marketplace where the NFT is listed before you can officially own an NFT. It is required to open an account with the NFT exchange (which is the marketplace) before initiating the transaction.
You will find that most NFT marketplaces work like auction sites such as the auctions on eBay. You may have to wait a couple of minutes or a few hours for the NFT transaction to finalize.
What to Know After You Invest in NFTs
You can choose to keep purchasing and selling NFTs back to back. This option is best if you want to make a short-term profit. On the other hand, you can choose to buy, store, and keep collecting NFTs for the long term.
You are allowed to make the call about your investment approach. It is entirely up to you. However, remember to keep a close eye on your NFTs. Also, remember that both selling and purchasing NFTs can cause a capital gain tax liability.
Make sure to keep track of your cryptocurrency and NFT capital gains. You will also have to record and report the gains on your tax return each year. NFT taxation can be confusing because they can be considered collectibles. As a result, you could be subjected to a larger capital gains tax rate of 28%.
Treinetic’s Final Words: Should You Invest in NFTs?
Now for the big question: Should You Invest in NFTs? Well, NFTs are undeniably a potentially profitable investment. But is it right for you? Suppose you are looking for an investment plan that is non-volatile and stable. Or maybe you are not technically inclined. In such cases, NFTs might not be able to serve you well.
If you wish to get into NFTs, you should be knowledgeable and comfortable with the process. Consider the risks and your skills to manage a digital wallet. Weigh the advantages and disadvantages carefully before deciding to invest in NFTs.
Do you want to make your own 3D NFTs but need some help from a pro? Get in touch with the 3D experts at Metafylabs, who are also experts in blockchain technologies related to digital arts.